Paul Krugman usually has enough important topics to occupy himself, like the sorry state of health care, income inequality, tax policy, Bush Administration offenses du jour, that he rarely gets around to matters financial.

But stress in the markets has again come to the fore, so Krugman is taking a serious look. Not surprisingly, he doesn’t like what he sees.

He found a speech by New York Fed President Geithner on a market conditions “quite frightening” (and remember, a big part of Geithner’s job is to be as reassuring as possible). In a separate post, “What’s Ben doing?“, Krugman gave a good explanation of the theory between Fed interventions like the TAF and its new $100 billion repo facility announced Friday (Krugman deemed the post “very wonkish” but it just has the sort of conceptual charts you see in econ courses, no scary formulas. Curious readers should most assuredly have a look).

His bottom line is sobering:

The financial crisis seems to have entered its third wave. Panic in August, then partial recovery thanks to lots of money thrown at the system by the Fed. Renewed panic late fall, then partial recovery thanks to even more money thrown in, especially the Temporary Auction Facility. And panic has set in yet again…

So the Fed is throwing another wave of money in, via the TAF and also additional loans to banks. All this lending is backed by collateral: the banks are setting aside various stuff, but probably mainly mortgage-backed securities….

OK, this is just like the way you analyze sterilized intervention in currencies. And the usual problem with such intervention applies: the financial markets are so huge that even big interventions tend to look like a drop in the bucket. If foreign exchange intervention works, it’s usually because of the “slap in the face” effect: the markets are getting hysterical, and intervention gives them a chance to come to their senses.

And the problem now becomes obvious. This is now the third time Ben & co. have tried slapping the market in the face — and panic keeps coming back. So maybe the markets aren’t hysterical — maybe they’re just facing reality. And in that case the markets don’t need a slap in the face, they need more fundamental treatment — and maybe triage.

There has been a small. lonely cohort, whose members include Australia’s former Reserve Bank governor Ian Macfarlane, Henry Kaufman, Steven Roach, and James Hamilton, who early in the credit upheaval argued that monetary measures would not be sufficient, that our regulatory regime is outdated and needs a serious overhaul.

As a reader reminded me, the credit implosion has often and inaccurately been characterized as a subprime crisis; it should instead be depicted as a securitization crisis. In a wonderful illustration, “How the French invented subprime in 1719,” James Macdonald in the Financial Times draws out the key parallels between the French Compagnie des Indes bubble of 1719-1720. The key element: repackaging bad debt (you might almost think of it as rebranding) and securitizing it made it vastly more attractive. Liquidity (or the belief that there would be liquidity) made investors willing to hold assets they would otherwise shun.

In our updated version, packagers used credit enhancement of various forms to sell dubious credits. But bear in mind: these same mechanisms were also used to sell higher quality debt as well, presumably for a better price.

There are two factors at work. The first is that, without any optical or real improvements to the credit quality, securitization is cheaper than bank intermediation. Any study of banks’ share of total financial intermediation will show a steady drop since 1980. Banks’ cost of capital and deposit insurance payments make them a more costly source of funds for all but small borrowers (and even those now find their assets securitized, via auto loan, credit card, and the well know mortgage bonds).

But separately, investment banks cleverly extended the market for securitized credit beyond what in retrospect was its natural boundaries: sourcing increasingly dodgy assets because the lucrative fees all along the pipeline created huge incentives to con investors; the use of credit enhancement that broke down under stress; the creation of considerable structural rigidity in the relentless pursuit of efficiency and profit (namely, the inability of mortgage servicers to do mods because their operations are incapable of doing anything on an individualized basis).

Securitizaton has become vital to the functioning of our credit system. But we are seeing multiple failures: not only has mortgage related debt become harder to sell, but the asset backed commercial paper market has been shrinking, and credit card debt is becoming much harder to sell as well. Some of this no doubt is due to worries about deteriorating borrower performance, but it appears to be exacerbated by the strains on the securitization machinery.

While the monoline business may or may not be less important in the municipal bond markets due to the unbelievably low incidence of defaults, the guaranty business is actually far more important to the MBS business than most have given attention to thus far — precisely because defaults can and do happen.

For secondary mortgage market participants, resolving this crisis isn’t just a piece of the puzzle; it might be the puzzle. At the American Securitization Conference in Las Vegas last week, many investment bankers suggested on panels and in hallways that the bond insurer mess is the single largest issue keeping the private-party market from having a chance at establishing any modicum of recovery going forward.

This is troubling, since a fair number of people (yours truly included) believe the bond guarantors’ days are numbered. And the need for credit enhancement has been implicitly acknowledged in the calls for Fannie and Freddie to play a larger role. That, however, seems to be going pear-shaped due to the decay in agency spreads that appears to be in direct response to these very proposals.

Certain elements of the securitization problem have gotten a great deal of attention, such as the problematic role of the credit agencies, bad incentives, lack of transparency. But most of the approaches attempt to address isolated elements of the problem, independent of each other. That isn’t going to work. There needs to be an integrated, systematic approach to reform.

The fallback, going back to finance circa 1980, with banks holding loans on their balance sheets, is such a costly reversal as to be unthinkable (particularly given the near-impossibility of coming up with sufficient bank equity to support big enough balance sheets to carry all those loans).

We need more serious attention to the real problem. I don’t pretend to have answers, but if people like Krugman, who have the attention and respect of policymakers, can get the fundamental issues on the table, it improves the odds of working our way through this mess.

The system is getting a de facto overhaul as suggested by Kaufman et al, and it’s happening right before our eyes and without any need to work it through an incompetent legislative branch.

See yesterday’s post re nationalization of the banking system, which really boils down to the Fed supporting the agency debt market. See Lune’s comment #28 to that post.

And why not? We are in a deleveraging crisis, and where is the most leverage? The agency debt market, a la Carlyle’s reported ratio of 32 times and Fannie’s own ratio of 20 times. Leverage on leverage.

If the fed does nothing, the deleveraging just continues to build upon itself. It seems to me the fed is doing what it can to address the deleveraging crisis at its most sensitive point. And in ways that are entirely new.

Hence, systemic overhaul without waiting for Congress to even pretend that it can understand the problem.

Yes, there is a breakdown in trust in the credt markets as Krugman has stated. One step in restoring faith in the system would be to jail the heads of the investment banks and the ratings agencies for colluding to commit fraud. Put a face on a crime and start by jailing Paulson.

It seems to me that a major cause was the mispricing of the credit due to the alleged “insurance” provided. Basically, you had a below market premium paid to the monolines to bring the securitized debt to AAA. Consequently, much more debt was issued at too low of an interest rate. If this debt was properly priced, or if premiums were accurately priced, I believe this problem would have been much smaller. In addition, the governments sanctioning of only 3 rating agencies, instead of allowing the market to dictate the number and business model of the rating agencies, exacerbated the problem and caused further dislocations. On top of it, the rating agencies were being paid by the issuers of the securities. All of these factors caused the tsunami we see today, and it will take some time to clear out the problem.

Basically the FED needs to be abolished and it’s functions assumed by the Treasury. Only then will there be political accountability. Two, the right to own and trade with and for gold needs to be constitutionally guaranteed. Three, the right to move capital across borders and to hold foreign currencies within the borders of the US needs to be legislatively guaranteed. Finally, the wealthy in the country need to suck it up and accept that they are going to suffer huge accounting losses. Whether or not they suffer real economic loses depends upon their leverage. Bill Gates may see the the nominal value of his holdings fall to the 1 billion dollar level. However, that will probably be worth as much or more than his current nominal wealth of 40 to 50 billion. Those wealthy who are leveraged will not be so fortunate. There Will De Change! All Values Will Be Revalued! The number of neocons will grow exponentially.

I’m curious why you state a return to the 80s way of financing would be unthinkable. While the costs of financial transactions and debt would likely be higher, the ability to understand and regulate the market would be better, and that’s a tradeoff that I’d be willing to take. I’m quite skeptical about the benefits of the age of securitization.

To use an analogy from cardiology: for many years, cardiologists used to heavily prescribe anti-arrhythmics (drugs to make an irregular heartbeat more regular) because it was thought that smoothing out the frequent, random irregularities seen on an EKG would be a good thing. It turns out that while anti-arrythmics make arrythmias less frequent, they also make the remaining irregularities more deadly. And in the end, overall mortality was higher. As a result, anti-arrythmics are used more rarely these days (only if you have an arrythmia that’s truly deadly).

My point, and one that I think you’ve made in previous posts as well, is that while securitization stabilizes the daily or yearly fluctuations in the markets, it makes the remaining fluctuations much deadlier. And overall, I think we’re worse for it.

Would this unwinding of the markets have started a few years ago if securitization didn’t prop up mortgage markets by “creating” AAA debt out of junk? And if it started a couple of years ago, would the ultimate pain and costs have been less? I think so.

As for the decrease in costs of financial transactions, these must be weighed against the hundreds of billions of dollars that the government will likely spend to bail out the players, not to mention the trillions of dollars that the investors stand to lose when all if this is said and done.

So in the end, securitization has led to a model of smooth sailing for a number of years followed by a fall off the cliff. I don’t know if that’s really the best way to structure the financial world.

Here @ Goldman, we like to think that manure is the fuel of the future, not just fuel to heat your homes or power your SUVs, but fuel in terms of our new derivatives, which are known across the globe as Asset Backed Manure Futures (ABMFs).

In the simplest terms manure is a free and readily available commodity which is almost as common as sand flies on a beach. That’s just one of the reasons why we like ABMFs! Although you might have once thought of manure as being a totally free and useless animal (or human*) by-product the future value of manure is anticipated to increase exponentially as a result of The Commodities Exchange entry into this new and very exciting product!

Many of you may be thinking this type of invest may not have “parabolic” future value, but we think otherwise. Just read this recent study from The Fed Board, who is the co-underwriter of this new product (available soon):

Entropy can be described as the amount of disorder. When we burn fuel, we’re simply moving energy from one form to another, without changing its total. What does change, however, is the amount of disorder. One of the laws of thermodynamics states that in a closed system entropy can never decrease. In other words, as time goes by, everything gets messier.

If you have a teenager in your household you probably have a good intuitive grasp of this concept.

The big reason we can’t go back is that the banks would have to bulk up, both in terms of their equity bases and their staffing, to a degree that is hard to imagine (I should probably do a quick and dirty analysis, but the numbers would come from different places……).

In 1980, the banking sector was vastly larger than Wall Street. The Fed was also vastly larger relative to the banking system and credit intermediation. Although you had institutional investors back then, they didn’t control (proportionately) any where near as much funds as they do now. Banks in aggregate were the big players.

We aren’t going back to that world. Too much wealth is held by institutional investors and, increasingly, sovereign wealth funds. The name of the game now is how to intermediate between them and the people who need capital.

The other reason, per above, is that bank intermediation is much more costly. A lot of intermediation done now simply won’t work in a bank model. Credit cards, auto loans, mortgages, will all be more costly (in terms of spreads over risk free rates) than before.

Now having said that, per the comment above, it isn’t at all clear how to “fix” the structured credit model. It may not be fixable. So we may wind up with a partial reversion, although I don’t think anyone (particularly the banks themselves, who are preoccupied with survival right now) has any concrete plans to act on that view. I think they’d be concerned that even if they stepped into the breech, three to five years from then, Wall Street would be back to eating their lunch, and they’d have to downsize and face angry shareholders.

Just as we are entering a long-term shift to high cost commodities, we may also be seeing a long-term, rather than cyclical, shift to higher cost credit.

To be explicit, not all securitized credit is structured. Simple mortgage pass throughs are not structured. But (until recently) most investors preferred the structured version. The cash flows were more predictable.

yves, do I understand correctly that you’re saying the problem with going back to the 80’s is simply there is no real way to get there from here? In other words if there was a path back, then it might be reasonable. Second, how much of the lower cost of securitized lending comes from lack of attention to detail (that was present back when the banks were lending their own money). From my own very limited knowledge of the mortgage industry, it seems that most or all the efficiency resulted from lack of attention to detail (verifying borrowers income, mortgage servicers keeping accurate records, hiring competent lawyers to handle foreclosures, etc.)

In all fairness to the French, it was a Scotsman, John Law, who was behind the Mississippi Company.

A wonderful play by David Greig, called The Speculator, was published and is available in paperback with another play called The Meeting.

If you like Lanford Wilson’s Balm in Gilead, or Marat/Sade for that matter, you would love this.

There is an angel character, St. Antoine, who describes the future of high rise buildings and roads.

There is a wonderful scene with an ex-nun and her much younger male paramour, where the male climbs aboard a Harley-Davidson motorcycle, presented by the angel. He has no idea what it is, then screams in utter panic when he experiences it in motion.

John Law is holed up in an estate with the French hordes (investors) trying to kill him.

In the meantime, this strange substance that emits “blue smoke” is tried. Tobacco.

Regarding Bill Clinton and the fiscal surplus generated on his watch:I believe that he is accorded too much credit for the financial successes of the period. He arrived in the White House for a perfect financial storm.The Cold War had ended and we did not need to overspend on defense so there was a significantly smaller constraint from that quarter.

He also sat in the White House as the technolgical revolution crested. it dramatically altered the way we live and the way busines operates and spawned Mr Greenspan’s Productivity Miracle.

Lastly, Mr Clinton benefitted from the maturation of the baby boomers,the largest demographic cohort in history. They had attained their peak earning years and were at the point at which they could begin accumulating assets . And accumulate them they did with a vengeance as this aquisition of financial assets drove stock prices higher and interest rates lower as the baby boomers threw money at the financial markets.

I can recall seeing studies when I worked at JPMorgan in the late 1990s which demonstrated that the biggest chunk of money which had poured into the Treasury in this period and had a salutary effect on the budgetary problems had come from capital gains on stock sales.The higher prices ,I suggest ,came from this en masse purchase of assets by boomers.

So Mr Clinton, I think, gets too much credit and history will record and remember him as a medicore footnote.

As an aside I am always flummoxed by Mr Clinton’s iconic rock star status among Democrats. Under his guidance the party lost its virtually unchallenged hegemony in the US Congress which stretched from 1932 until the electoral debacle which Mr Clinton presided over in 1994. He was best at promoting his own self interest and little else. Ask his wife for whom he has been a detriment.

You are misreading my comments about Clinton. I’m not a fan of his, it’s just that he (or just about anyone, including Nixon) looks good by contrast with Bush.

My reason for bringing him up was that Independent Accountant asserted (in effect) that if government has tax revenues, they will spend them. Clinton and Australia says that isn’t a given.

For my money, Clinton blew the only chance we had to do root and branch reform of health care. Hillary went off and designed a solution (and a pretty cumbersome one as I recall) in a vacuum, failing to co-opt or at least neuter likely critics. The fact that that whole process turned out to be a fiasco (it was front page news just about every day for a year) gave the Republicans a big boost.

On the general comments about securitization being inherently cheaper, it is, due strictly to the cost of bank equity and deposit insurance supporting loans. McKinsey, and I am sure every other consulting firm that had bank clients, was doing comparative cost charts in the 1980s showing banks their traditional lending business was in the early stages of a long-term decline because they had a structural cost disadvantage.

Think of it another way: how could so many players in the securitization process pull out up front fees and still deliver a competitive product if it didn’t enjoy major cost advantages?

The problem is that what could have been a sound process has been badly adulterated. Bridges are valuable, but if the designers start trying to make them in the most “efficient” fashion and worry about their profits over the quality of the product, you’ll have them cutting corners on design and materials. Everything looks great until that once in every 25 year storm comes along and you have widespread bridge collapses. In essence, that’s what happened here.

While you’re correct that it’ll be a huge upheaval to get back to the 80s model, it’s not impossible. and I think the benefits outweigh the costs/complexities.

You’re correct that a lot of money is now held by institutional investors, but part of the problem these days is that quite frankly, institutional investors are stupid and get taken for a ride by Wall St. every single time. They should not be investing in car loans, credit cards, nor mortgages unless they have special expertise. What expertise does Calpers have to evaluate whether Joe down the street is able to pay back his mortgage? It doesn’t, so it shouldn’t be allowed to invest. Leave that to the neighborhood bank.

What does that leave for institutional investors? Govt bonds, and long-term equities. Just like in the 80s. I realize that such conservative investments don’t yield much return, and part of pension funds’ forays into exotic financial products is that they’re desperate to boost their returns in order to be able to pay for skyrocketing medical costs and other rapidly increasing obligations without requiring drastic infusions of new money.

But there’s an old saying in investing: “amateurs chase returns, professionals manage risk.” Much of today’s mess is because people who don’t know how to manage risk (including some of the best and brightest in Wall St) took on products they didn’t understand in the name of higher returns. The financial markets would be a lot more stable if people who knew about auto loans bought auto loans, people who knew about credit cards bought credit card debt, and people who knew about mortgages invested in mortgages. The idea that debt is debt and everything is fungible is proving now to be very untrue.

Will this raise the cost of borrowing for those debt markets? To the extent that the dumb money is squeezed out and the only ones left are ones who know how to evaluate the products and price accordingly, yes the cost will go up. But people were buying cars, living in houses, and using credit cards back in the 80s. They will do so again, even if the spreads go back to historical norms (perhaps after a deep recession, I grant you).

In the end, I’m not necessarily arguing that banks have to be the intermediary between investors and debtors, just that the intermediation process must be easy to understand, predictable, reliable, stable, and even boring, even if that means costs go up and financial “innovation” is curtailed. In the 80s we had that (until Milken, I suppose :-). If we can’t go back strictly to the 80s, then at least the principles from that era need to be applied to today’s world.

how could so many players in the securitization process pull out up front fees and still deliver a competitive product if it didn’t enjoy major cost advantages?

That’s precisely the point: they didn’t deliver a competitive product. We now know that a AAA CDO tranche is not the same as a AAA corporate bond is not the same as a AAA muni bond is not the same as AAA treasuries. The fact that some marketing droid convinced a stupid buyer that they were all the same doesn’t mean they actually were. IMHO, even a mortgage originated and held by a bank is not the same as a basket of mortgages in an MBS. Why? Precisely because the regulations involved in orginating a mortgage make the former product a lot more reliable than the latter, plus, if the bank must hold the mortgage and therefore be on the ropes if it defaults, it will likely be of higher quality than the crap they passed through to be sold to some chump at the other end of the MBS. Regardless of whether some clueless ratings agency rated both products as AAA.

In the end, I don’t think that cost advantage you speak of was real. There’s a reason why banks must comply with all that “burdensome” regulation. Every single piece of “red tape” was put in place by someone because of some violation that occurred in the past. Throwing out that body of rules in the name of efficiency without understanding why those rules were there in the first place isn’t the type of innovation we need.

With regards to your bridge analogy: bridge building is boring. Precisely because “innovation” is viewed suspiciously until it’s been proven sound and everyone understands why it’s sound. Try selling a bridge technology to an engineer by saying “don’t worry about working through the math yourself, this guy down the street has rated it AAA; it’ll last for a 100 years. And it can be done at 50% the cost. Trust me.” That’s not a cost advantage any sane engineer would go for.

I don’t have access to the analyses now, but trust me, they were done YEARS before anyone was doing these complicated structured credits or credit enhancement.

The cost of bank equity and deposit insurance as part of the total cost of making a loan is sufficiently high as to make loans uncompetitive relative to plain vanilla securitization, no CDOs, no tranches, no fancy footwork.

And the securitizations done in the mid-late 1980s (some mortgage deals were tranched then but the only form of credit enhancement was overcollateralization) didn’t blow op in the 1990-1991 recession. And that was a very bad recession, lots of banks were undercapitalized and there were worries about how long it would take banks to rebuild their equity bases.

So there are ways to do these deals that don’t stick investors with toxic product. But the designers pushed it way way too far.

Securitization is not at fault here. It is simply another mechanism used to transfer asset financing from a bank-based system to a markets-based one. All of this was incentivized by the final repeal of the Glass-Steagall Act in 1999.

Thus, the only plausible solution to this mess is to reinstate Glass-Steagall and temporarily suspend minimum capital requirements to allow banks to gain compliance with the new (old) regulations. This is what I suspect will ultimately happen.

As I have said before, the problems today are not monetary, fiscal or otherwise economic in nature. They are structural and can only be solved with structural reform.

Actually, the Clinton years (from adolescent memory) were a bit of both your comments, after the record deficits of the republican years , re Reagan and Bush senior, he managed to come up with surpluses ( a real surprise, which clinton trumpeted every chance he got) , granted that part of it was due to reasons JJJ posited. The healthcare fiasco and those prurient scandals were what spoilt an otherwise rather pretty picture. Let’s see whether the next president reinforces patterns?

anon March 9, 2008 9:23 PM

sounds like a suitably surreal play for surreal times!

Lune

Were the 80s really all that great? The predecessors of Citigroup (from the Weill days) weren’t exactly boy scouts in those days, some of the questionable debt lingered after the 87 crash to be written off later . Milken was the poster boy for a age where greed was idolized. Perhaps it’s the gloom of today that makes the 80s look that much more golden. Frankly, there were plenty of people who worked in banks who didn’t understand the business way back in the 80s, then as is now, controls and risk management are often afterthoughts which occur to blame allocators when something goes terribly wrong. When times are good, controls are those platitudes that you mouth to shareholders but are the pain in everyone’s hinny, to be ignored whereever possible, those who actively pursue or worry about potential problems are invariably labelled as party poopers. It’s just human nature, greed and the blindness it invokeswhich has caused this mess, not bank intermediation in decline nor lack of understanding of securitization. Not supporting a return to the 80s style nor the reckless rush to securitization, perhaps a middle path? Incidentally, was the 80s style of technical traders/chartists what inspired the quant methods of today?Thoughts anyone?

On the bank equity, there are other phoney-baloney ways to achieve the same end, but yes, I imagine that is what the regulators will do.

There are also other ways to keep depositaries from being in the securities business, like requiring the depositary business to be segregated from the rest of the bank and hold only super safe investments (Treasuries or other full faith and credit obligations).

Just so you know, Glass Steagall was dead long before it was officially revoked in 1999. JP Morgan had become a serious force in securities underwriitng by the mid-1990s; Bankers’ Trust was one of the two top derivatives firms as of 1993; Citibank merged with Travelers, which owned Salomon Smith Barney, in 1998.

After roughly 1994, most of the meaningful barriers to a bank being in a securities business were gone. I’m not up on the regulatory issues; there were certain structural niceties they had to observe.

I don’t believe returning to Glass Steagall will solve the problems we are facing now. We now have securities firms that are too big to fail. If Goldman or Merrill went under, it would be as disruptive as, say, UBS collapsing. They too have become key parts of the financial infrastructure (and this isn’t my opinion; the April 2007 Bank of England Stability report points out that the failure of any of sixteen “large complex financial institutions” could be a systemic event).

I am not a regulatory expert but having worked in the securitization industry for over 20 years, I am quite familiar with the role “commercial banks” have played in originating securities for some time.

— Following the Great Crash of 1929, one of every five banks in America fails. Many people, especially politicians, see market speculation engaged in by banks during the 1920s as a cause of the crash. [we clearly haven’t crashed yet but the din is getting louder now]

— In 1933, Senator Carter Glass (D-Va.) and Congressman Henry Steagall (D-Ala.) introduce the historic legislation that bears their name, seeking to limit the conflicts of interest [as today] created when commercial banks are permitted to underwrite stocks or bonds. In the early part of the century, individual investors were seriously hurt by banks whose overriding interest was promoting stocks of interest and benefit to the banks, rather than to individual investors. [rapidly approaching this stage now] The new law bans commercial banks from underwriting securities, forcing banks to choose between being a simple lender or an underwriter (brokerage). The act also establishes the Federal Deposit Insurance Corporation (FDIC), insuring bank deposits, and strengthens the Federal Reserve’s control over credit.

— In the spring of 1987, the Federal Reserve Board votes 3-2 in favor of easing regulations under Glass-Steagall Act, overriding the opposition of Chairman Paul Volcker. The vote comes after the Fed Board hears proposals from Citicorp, J.P. Morgan and Bankers Trust advocating the loosening of Glass-Steagall restrictions to allow banks to handle several underwriting businesses, including commercial paper, municipal revenue bonds, and mortgage-backed securities. Thomas Theobald, then vice chairman of Citicorp, argues that three “outside checks” on corporate misbehavior had emerged since 1933: “a very effective” SEC; knowledgeable investors, and “very sophisticated” rating agencies. [these checks don’t seem to be working anymore] Volcker is unconvinced, and expresses his fear that lenders will recklessly lower loan standards in pursuit of lucrative securities offerings and market bad loans to the public. For many critics, it boiled down to the issue of two different cultures – a culture of risk which was the securities business, and a culture of protection of deposits which was the culture of banking.

— In August 1987, Alan Greenspan — formerly a director of J.P. Morgan and a proponent of banking deregulation — becomes chairman of the Federal Reserve Board. One reason Greenspan favors greater deregulation is to help U.S. banks compete with big foreign institutions.

and so on.

Many people have blamed today’s problems on Greenspan’s Fed. I think they have the right guy, but it was not the easing of credit that is the cause of today’s systemic problems but rather the easing of regulations that is at fault.